Saks Inc posted a smaller-than-expected quarterly loss on Tuesday as the upscale retailer cut costs and trimmed inventory to offset a steep drop in sales, sending its shares up more than 17 percent.

Saks also raised its target for cost cuts, as it expects sales will continue to decline for the rest of the year.

Saks said it now expects a reduction of about $60 million in selling, general and administrative costs in 2009, from its prior expectation of $20 million to $30 million.

It also said capital expenditures would be about $55 million, down from the $60 million it expected earlier.

The retailer has been among the worst hit in the recession. It has faced months of slumping sales and had to resort to deep discounts to attract shoppers in the holiday season.

P. Schoenfeld Asset Management LP, a hedge fund firm with a stake in Saks has called for governance reforms, contending the struggling luxury chain must adopt annual elections for all directors and become more responsive to investors.

PSAM, which said it owned about 1.5 percent of Saks shares, said stockholders should hold Saks' board responsible for its poor performance.

Separately, the world's largest home improvement retailer Home Depot Inc also beat expectations with its quarterly profit due to expense reductions.


Saks' net loss was $5.1 million, or 4 cents per share, in the fiscal first quarter that ended May 2, compared with a profit of $17.3 million or 12 cents per share, a year earlier.

Excluding some charges, its loss of 3 cents per share was much smaller than the loss of 26 cents per share expected on average, according to Reuters Estimates.

Sales fell 26.9 percent to $621.3 million, as sales at stores open at least a year dropped 27.6 percent.

For the full year, Saks still forecast same-store sales to decline in the low double digit percentage range. It is also targeting a 20 percent decrease in inventory for 2009.

Earlier this year, Saks dismissed rumors that it could seek bankruptcy protection, and said it was still committed to luxury, would intensify its focus on some brands and expects to have ample liquidity this year.

Saks shares were up 17.1 percent at $4.78 in premarket trading from Monday's closing price of $4.08.

(Reporting by Aarthi Sivaraman, editing by Dave Zimmerman and Maureen Bavdek)